Apache Corporation (APA)’s Down But Hardly Out

As the members of the energy sector continued to check in with their individual results this week, Apache Corporation (NYSE:APA), the fourth-largest U.S.-based independent producers clearly didn’t impress Mr. Market. With earnings results falling short of expectations, its shares dipped by 4.7% on Thursday, the company’s release day.

May I call you miss?
For the quarter, Apache reported net income of $649 million, or $1.64 per share, down significantly from $1.17 billion, or $2.98 per share, for the final quarter of 2011. After backing out items, however, adjusted per-share earnings were $2.27, representing a miss from the $2.30 expected by analysts.

The primary culprits in shaping the weaker quarter were lower oil and gas realizations and increased labor costs. It appears that the average price that Apache received for oil dropped by nearly 4%, while NGL realizations were fully 26% lower.

From the standpoint of oil, gas, and liquids production, the company averaged 800,005 barrels of oil equivalent in the quarter, a 5.4% increase on a year-over-year basis. Of that total, 53% constituted liquids. The company’s output of oil and natural gas liquids was about 11.4% higher at 425,867 barrels per day. However, natural gas production retreated to 2,244.9 million cubic feet per day, slippage of 0.8% from the comparable year-ago quarter. According to CEO G. Steven Farris, but for unplanned downtime in the North Sean and the traipsing of Hurricane Isaac through the Gulf of Mexico, the overall production total would have been higher.

Apache’s capital spending totaled $2.83 million in the quarter, bringing the full-year total to $10.03 billion. Management indicated an expectation that capital expenditures will constitute about $10.5 billion during 2013. At the same time, the company anticipates jettisoning about $2 billion in assets this year, although the specific locations of its for-sale signs are unclear at this point.

Solid reserve replacement
In a related area, Apache managed to add reserves totaling 372 million barrels of oil equivalent during the entirety of 2012. Importantly, that figure came to 131% of the year. And if acquisitions were added to the mix, the reserve replacement rate would have come to a relatively impressive 156%, excluding revisions.

Following the close of the quarter, Apache completed a transaction that raised its stake in northern British Columbia’s Kitimat LNG project to 50%. At the same time, it transferred operator status to Chevron Corporation (NYSE:CVX) , which, through a series of transactions involving prior partners in the project — namely, EOG Resources, Inc. (NYSE:EOG) and Calgary-based EnCana Corporation (USA) (NYSE:ECA) — had accumulated a 50% interest of its own.

A quick tour of operations
Focusing on Apache’s operations during the quarter, it’s appropriate to begin with the Permian Basin of southwester Texas and southeastern New Mexico. The company is the majordomo in that relatively elderly — albeit revitalized — play. For the fourth quarter in the Permian, Apache produced nearly 118,000 barrels of oil equivalent per day, 74% of which was liquids. That output accounted for about 15% of the company’s total output.